Dollar bears starting to make their case

Sell the dollar and put money into assets such as emergingmarket stocks and gold as the world’s economic recovery gathers steam, money managers say.

A growing chorus of investors is betting that the US currency has reached a peak in a dramatic turnaround from a month ago when positioning in the greenback was the most bullish since 2015.

Melbourne-based K2 Asset Management recommends selling the US dollar for Asian emerging bonds and European stocks. Brandywine Global Investment Management in Pennsylvania is buying commodity-linked currencies. Bleakley Advisory Group in New Jersey favours gold and silver.

“The dollar has reached its peak,” said Jack McIntyre, a money manager at Brandywine who turned short on the dollar last month against the Aussie and Chilean peso. “It’s overvalued, people have been too long on it. To me the biggest factor that’s going to weaken the dollar is just the improvement of global growth.”

The Bloomberg Dollar Spot Index slumped the most since May last Wednesday as traders sold the US currency following inflation data that was generally in line with market forecasts. Funds that had looked to front-run a hawkish Federal Reserve are unwinding long positions as improving growth from Germany to China adds to the case for value outside the US.

“The dollar has clearly rolled over and in hindsight it really only rallied last year because the Fed was ahead of the Bank of Japan and European Central Bank in tightening,” said Peter Boockvar, chief investment officer at Bleakley. “I still love gold and silver” as an alternative to the dollar, he added.

The dollar is likely to keep weakening as the combination of a wider US deficit and a broader global recovery favouring assets outside America is now starting to play out, investors say.

“The dollar’s peak is definitely behind us,” said George Boubouras of K2 Asset Management, who is looking for opportunities to buy everything from the Chilean peso to sovereign bonds in Southeast Asia.

While dollar bears are finding their voice, others say it’s too soon to write off the greenback just yet.

Citigroup Global Markets, for example, points to both rising US interest rates and the Fed’s quantitative tightening as “typically negative” for emerging-market rates and currencies.